October 26th, 2012 / Insight posted in

No tax on sales of small gardens

WT writes: In conjunction with four neighbours we are considering the sale of almost half an acre of our garden to a developer. Our accountant tells us we will be liable to capital-gains tax on the profit but our neighbours have been told there is no tax on sales of less than an acre. Is this true? Our house is held in trust for my wife´s occupation for her lifetime and then passes to our children. Does this make any difference?

The principal private residence (PPR) exemption from capital-gains tax does apply where the life tenant occupies the property. Therefore the lifetime interest of your wife will not affect the ability of the trust to make a claim for the PPR exemption. However, there are prescribed amounts of land that can form part of the dwelling and therefore fall under the exemption. The permitted area is 0.5 hectares, which is slightly more than an acre, although a larger area can be allowed if it is required for the reasonable enjoyment of the property. So the tax implications of the sale of your half acre will depend on the size of the overall plot of land with the house. If the total area, prior to the sale, exceeds 0.5 hectares, the Inland Revenue may claim that the fact that you can sell the land is prima facie evidence that it is not required for the enjoyment of the property and therefore falls outside the PPR exemption. The rate of tax payable by the trust will be 34%.